Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – Avoiding Recession is a Narrow Path

Thursday, 30th June, 2022

Daily Flows

  • Yesterday saw strong flows into short dated NCDs as some of the bigger players balanced their books before end of financial year.
  • The market continued to cry out for liquidity, with banks looking to firm up their position for 30th June. NCD margins hit +40 for 3 months. This is likely to increase today, with a bank offering +47 before the trading day started.
  • BBB+ rated banks continued to offer attractive rates for 6-12 mont investments. Off rate specials continue to present themselves as competition for funds increase.

The Path To No Recession Is Narrow

  • Last night, Fed Chair Powell spoke to a European Central Bank Conference about the Monetary Policy outlook.
  • Powell stated that the Fed is “racing against the clock to beat inflation”.
  • Essentially, The Fed will do whatever it takes to undercut and prevent inflation being elevated for a sustained period of time.
  • “Is there a risk we would go too far? Certainly there is a risk. But I wouldn’t agree that it’s the biggest risk to the economy. The bigger mistake to make, let’s put it that way, would be to fail to restore price stability,” Powell stated.
  • Further, when pressed about the potential for a recession on the back of tightening financial conditions, Powell stated, “it has gotten harder, the pathways have gotten narrower”.

Retail Sales Surprise

  • May retail sales came out better than expected, seeing an increase of 0.90% MoM.
  • Expectations were for an increase of 0.40% MoM.
  • Inflation pressures mounting on the inflation continues to drive the strong results.
  • However, there is some evidence that volumes are increasing and accounting for the increase.
  • It is a double edged sword though, as an increase in demand places further pressure on supply chains and will continue to elevate prices.

Nicholas Allan

Associate - Money Markets